Pandora Project and its experimental token standard, ERC-404, have successfully driven the fragmentation of NFT narratives and market speculation. Its price surged from a low point of $250 to $32,799. However, it started to decline after February 9th and has fallen below $20,000 to $19,668 as of the deadline, with a decline of over 40%. Yu Xian, the founder of SlowMist, also pointed out multiple risks associated with this.
Pandora Project is based on the experimental token standard ERC-404, proposed by 0xacme, a former Coinbase employee. It aims to optimize the liquidity issue of NFTs. ERC404 combines the applications of both ERC20 and ERC721 to enhance the liquidity and composability of digital assets, especially NFTs. Each token corresponds to an NFT, and when a user sells an NFT, the token is automatically transferred, and when a user sells a token, the corresponding NFT is burned until the token is purchased by another user, and the NFT is minted again.
Pandora utilizes the design of combining NFTs with tokens to successfully drive the fragmentation and liquidity of NFT narratives. There are potential applications in the future, such as introducing NFTs into DeFi lending markets, collateralization, and even derivatives, maximizing the liquidity and capital utilization of NFTs.
Loopify, the founder of Endless Clouds, describes ERC-404 as “essentially fragmented NFTs with the best UI/UX that traders need.”
Pandora’s success has led to market speculation and the fragmentation of NFT narratives. OKX and Binance quickly announced support for ERC-404, causing its price to rise from $250 to $32,799. However, it started to decline after February 9th and has fallen below $20,000 to $19,668 as of the deadline, with a decline of over 40%. Other developers have also started to try to improve ERC-404 or develop similar competitive token standards.
Pandora’s official team emphasizes the exploration of potential grants and developer incentive frameworks in the future to avoid excessive malignant competition.
Yu Xian, the founder of SlowMist, has raised multiple risks associated with ERC-404:
1. Risk of indiscriminate distribution of NFT rarity: NFT rarity may be indiscriminately distributed to counterparties, potentially undervaluing rare NFTs.
2. Risk of NFT burning: Due to the precision limitation of fungible tokens (FT), when the quantity of FT is less than an integer, it may accidentally burn NFTs.
3. Risk of increased gas fees: It may lead to increased transaction costs.
4. Market trading disorder: If the contract owner executes revokeOwnership, the subsequent whitelist mechanism will not be updated, which may lead to market disorder.
Yu Xian finally pointed out that the ERC-404 standard is not yet mature, and different project parties may modify it, leading to unforeseen security risks. In addition, ERC-404 is not an officially recognized token standard by Ethereum. Pandora is still actively developing Ethereum Improvement Proposals (EIP), and the process may take some time.
Pandora, ERC-404, and related images can be found in the original article.